April 1, 2020

Automated Stock Trading Systems: Laurens Bensdorp

As luck would have it, today I was scheduled to chat with author Laurens Bensdorp about his new book, Automated Stock Trading Systems. With all of the uncertainty about the market and what’s to come, it was fascinating to speak with Laurens, who is an expert in trading based on history, statistics, and logic, rather than emotion, which as we all know, it’s so easy to fall into right now, especially when it comes to our financial wellbeing.

Stay tuned for his thoughts, philosophy, and insight about what to do or not to do next.

Nikki Van Noy: Laurens, thank you so much for joining me today.

Laurens Bensdorp: Hi Nikki, it is a pleasure being here. How are you?

Nikki Van Noy: I’m good and so excited to talk to you. To let listeners know, we are recording this on March 20th. Obviously, there’s a lot happening in the world right now and this feels like such an opportunity to get to talk to you in particular about this Laurens. It is a case of great timing.

Laurens Bensdorp: Yes, I think so, absolutely. I mean, it’s definitely a very unusual time with events that we have not really foreseen. That is something that is definitely special and very different, so it’s my pleasure to be here and talk to you.

Nikki Van Noy: Awesome. Let’s start by just giving listeners an idea of who you are. Tell me a little bit about yourself and what brought you to this book.

Laurens Bensdorp: Okay, my name is Laurens Bensdorp and I am 48 years old. I am originally from the Netherlands and I own a company called Trading Mastery School, which is a small educational company where I teach people how to develop automated stock trading systems according to their personality and their risk tolerance.

Besides that, I also trade personally for my own account and that is my biggest passion basically, the stock markets. A lot of the stock market is basically all about psychology. I’ve always have been very interested in that and that’s basically who I am. I am living in Spain. I speak six languages right now and have lived in 11 different countries. I think that’s one of the things that is really cool if you are a stock trader, that you can basically decide where you want to live because all you need to have is an internet connection.

Nikki Van Noy: So cool, where are you right now? Are you in America at this moment?

Laurens Bensdorp: I’m currently in Brazil.

Nikki Van Noy: In Brazil, okay. How is it there?

Laurens Bensdorp: Over here, it is very quiet. While doing this interview, I have a view of the Copacabana beach in Rio De Janeiro, which is lovely, but it is very quiet here as well. They’ve closed the beaches and the restaurants are closed, there are not that many people in the hotel anymore. I’m basically stuck here because currently, my family is in Columbia and I am not allowed to enter Columbia until the 30th of April.

The day I wanted to fly back, I got the notice that said, “Your teams are not allowed to enter the country,” so I’m stuck here. That’s the situation and how it is. I am just trying to make the best out of it and I’m very grateful that we have tools like Whatsapp and Skype, so we can have a lot of communication by video. I am basically accepting the situation as it is.

Nikki Van Noy: Yeah, absolutely. Technology is just so powerful right now. It’s always powerful, but right now, it feels powerful in a different, human sort of way I’ve ever recognized before.

Laurens Bensdorp: Absolutely, I totally agree. Yeah, especially in these times where there are so many countries with lockups and everything, having the ability to communicate through different kinds of mediums, is so incredibly important and definitely very helpful.

A Time to Watch and Wait

Nikki Van Noy: 100%. I absolutely want to talk specifically about your new book but the stock market and trading is such a rich topic, generally speaking right now, I want to take advantage of your expertise while I have you and specifically, what I was really intrigued by is you’re giving us an idea of who you are and what you’re all about, is your fascination with the psychology of the market.

Talk to me a little bit about that and how you see that as playing into where we’re at right now and also, how we move forward from this point.

Laurens Bensdorp: Yeah, the current situation is, of course, there is a huge mass panic. I mean, there is a real situation, there is a real health issue, that is clear but there’s also a lot of overreaction, people panicking, totally freaking out, buying toilet paper everywhere, fighting around to get the last piece of toilet paper, et cetera, and basically, all that craziness and panic is in my opinion all caused by the media.

People are very used to watching TV. Everything you see, the whole day is about the things that the media wants us to see, the things so that the media gets the most viewers, which is generally not what is exactly real but that’s what those companies are for, they are there to make money, and the more viewers they have, the happier they are.

That kind of causes a catapult effect and there comes even more and more panic. We have seen that in the stock market, of course, a lot over the last five weeks or so. When there is panic like this, people panic as well with their finances when they see the market starting to really fold and there comes a point where they just psychologically can’t handle the pain anymore.

They haven’t prepared for this, so they sell at every price no matter what. They just want to get out. Now, the way I trade and the way my students trade is we basically have automated trading systems that we have developed over the course of six months, a complete trading plan with indicators, which then the computer says what to buy and what to sell.

Then, basically, the whole system runs on autopilot. That takes the emotion out of the complete trading process. That is a very comfortable way. I think another thing that currently is incredibly important is, with my trading, I don’t need to watch the news at all, as far as my finances, what people are talking about in the news because I trade both sides at the same time.

I mean, I trade both long and short at the same time. That again gives that emotional peace that regardless of what the market does, one can make money when the market goes down and when the market goes up.

I think that is incredibly important for people who actually still want to be informed about everything, which I do. I don’t watch TV but I read newspapers, of course, because I want to be informed. There’s a very crucial thing that we need to take into consideration, as far as the media, when we read newspapers or watch the news, we need to make a distinction between facts and opinion.

Opinions are basically there for people who probably have another agenda and not necessarily their opinion is true. It is basically a biased opinion according to what that person is most interested in or is his or her most benefit, basically.

If we are able to filter those opinions out and just focus on the facts, then we can keep our heads clear and we can actually have a rational thought about everything that is going on right now, not panicking, but keeping your head calm and saying, “Okay, this is true, these are the facts, and these are the ways I can act with that.”

Facts vs. Opinions

Nikki Van Noy: Full disclosure for listeners, we were chatting a little bit before we started recording and you made that point about opinions versus facts and it really struck me, especially right now. I think you can lose sight of that when you’re watching the media. You’re right, there’s such a big difference between opinions versus facts and if you can frame your media consumption that way, it really changes things.

Laurens Bensdorp: Totally, completely. I see it with so many people, they have the TV on the whole day, and they see all those images of people panicking and that changes one’s opinion. If you’re not trained to actually filter out the opinions, but it’s basically the whole media shows opinions because that’s what gets them viewers.

Nikki Van Noy: Absolutely. I would take it even further than that–I personally love the op-eds in the New York Times, I think that there are some really insightful writers. I’m interested in different viewpoints, but, particularly, in the case of really great writers, I can forget, even though opinion is baked into the title, that I am reading someone’s opinion. It’s sort of everywhere. I think it is an interesting thing to just think about generally as you consume.

Laurens Bensdorp: Yep, exactly. It keeps your head so much clearer when you are able to just have your own conclusions because you only need to look for the facts and it is very good for your quietness, and for your mental space.

Nikki Van Noy: Let’s talk about the automated stock trading systems that you are discussing in the book. This seems to me, as someone who does not know a lot about the market outside of a very casual level, it seems to me rationally like this is probably a great time to be buying. And also a very difficult time to completely separate emotion from that, even if you know that is what you are supposed to do. So how can these systems help both generally and in particular right now?

Laurens Bensdorp: Well we don’t know if it is a great time to buy because we are seeing here events that are so different than anything else that we have seen. We have an automated trading system. We do not make any predictions about what is going to happen. We base it on historical price action, basically. So, we look at the past and see what has happened and how certain trading systems react to that, but if we go back further, back in history, a good example is the 1929 crash in the market.

That was really an incredibly tough time and it wasn’t only the 1929 crash where the markets dropped 20 or 30%, it was the subsequent three years after that the markets kept going down, which resulted in a loss of the Dow Jones of about 85%. So, we can’t predict and say, “Okay, it has sold off so much, the market, it should be a great time to buy.” We don’t know that. There is nobody who can predict where the market is going. If anybody says, “I can predict where it is going,” he’s lying.

Nikki Van Noy: Good to know.

Laurens Bensdorp: It is probably that simple. There will be people who are right about it and say, “This is the time,” and eventually a few of them will be right. They then can claim, “Okay, I predicted this,” but can they consistently predict where the market goes? No, not really. It could be indeed that the market goes up right now but we are still in a time as we speak on March 20th, where there is so much uncertainty not only in the financial markets, but also the health issues that we don’t know yet when this is going to stop, how far it goes and when it will end. We don’t know that yet. So, it is very hard to make any kind of prediction at all.

Nikki Van Noy: That makes perfect sense, so what is the smart thing to do right now in your opinion? Ironically, since we talked about opinions versus facts but I am nonetheless curious.

Laurens Bensdorp: Yeah, so let’s look at my personal situation. I trade a combination of 50 different strategies at the same time and it is all run by computer. Every system is designed to make money in a different market type. So, some systems are making money in bull markets, some systems are making money in bear markets, some systems are designed for the recovery, etcetera, but it is the combination of all of those systems that really gives you the edge in the market.

So, for myself, I just let my thing run. I just let my systems trade as they are, and it has treated me very well during these last five weeks or so. It’s been up about eight and a half percent, which is nice, but I think what is more important is that my mental state keeps very quiet because it was developed to deal with situations like this. Of course, this is not advice, this is just my own personal situation. For other people, my advice is that I think it’s very dangerous right now to give advice.

The only thing I think, which is incredibly important, is that first of all people need to be very careful. Understand that if they see the market as a good buying moment right now but they have no rationale to actually back that up, they are gambling. There is no statistical evidence that if they buy it is going to turn out correct over the long run.

The other thing is, if we compare the volatility of the markets right now versus a month and a half ago, it’s about eight times higher right now. So, the daily market swings are huge, and it is my experience that most people cannot handle those market swings with their full equity. So, if people decide to either buy or sell–I don’t recommend any of that right now if you do not have a system in place for all of those market types.

If people still want to do it, be careful with your, as we call it in the trading world, position sizing. That means do not put all your money in right now because the market movements are incredibly fast and incredibly strong. We have seen days after days where the markets were locked down and 7% drops, 10% drops, oil is down 60% for the year. The Russell 2000 is close to 40% down for the year, S&P 500 30%, but we don’t know if this is the end.

We just don’t know and if you do not have a system in place that can handle both the up and the downside, I just think that the stock markets, if you go in right now, it is just a big gamble.

Preservation of Capital

Nikki Van Noy: Obviously, correct me if I am wrong, but what I am taking away from this is that this is very much the time to sit tight. In terms of setting up an automated trading system, now is a good time to educate yourself on that and then just hold tight until we reach a point where things become more even and get in. Am I understanding that right?

Laurens Bensdorp: I think that is exactly a good way to see it. Right now, preservation of capital is the most important thing because there is so much uncertainty. There will come a lot of opportunities, but it can take a while. It really can take a while and currently saying, “Okay, I just need to maintain cash and meanwhile, I can work on educating myself about the stock market. I need to have a suite of trading systems that can work very well in any kind of market condition.”

Then once you have done that, you can trade with that, and you have mental quietness. For me with this whole drop down in the markets, I didn’t lose an hour of sleep because my systems were designed to handle it, but also my positions, the sizes of my positions were adjusted according to the volatility. So, my sizes were getting smaller once the volatility is getting bigger. So, my account swings were not so incredibly huge that I would lose my mind about it and that is incredibly important, I think.

Nikki Van Noy: Yeah, what an amazing position to be in right now. I really love the honesty of what you just said that we don’t know, we have never seen this before, so there is no statistical information. I think that is the most important thing I’ve heard since this has all started, I think because everyone wants to get in there and give advice. It is just great to hear from an expert that all the standard advice just does not apply right now. We are just waiting and seeing.

Laurens Bensdorp: Exactly, that is the only thing we can do. The last month or so the WhatsApp messages from friends and other people in emails have been asking me, “Laurens where is the market going? What do you think I should do?” I don’t have the answers.

I just know that for myself and for students of mine who have developed their systems, that they could trade with a real relaxed mental state. But people who do not have anything in place right now, nobody knows what’s going on.

It could be a couple of scenarios–it could be that there suddenly will be a vaccine within a week or so and that could cause the stock market to rebound hugely. On the other hand, it could also be that it takes another three or four months or so until there is a vaccine or a cure or that it just kind of blows over. There are so many predictions right now. People are using graphs and saying, “Okay the peak will be there and there,” and yes it could be, but we still do not know how the stock market would react to that. There is no way to actually know that.

Nikki Van Noy: Got it. Laurens, such a pleasure speaking with you today. Again, I am just tickled by the way that this timing worked out. So again, the book is Automated Stock Trading Systems. Laurens, where else can listeners find you?

Laurens Bensdorp: They can find me on my website, tradingmasteryschool.com and I have written another book as well three years ago, The 30-minute Stock Trader, which is on Amazon of course, but mainly the best way is just to go to tradingmasteryschool.com.

Nikki Van Noy: Excellent, such a pleasure talking to you. Enjoy your unanticipated vacation in Rio de Janeiro and best of luck with the book.

Laurens Bensdorp: Thank you very much, Nikki. It was really great talking to you.